Cash & Liquidity Management
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What Matters Today #6: Centralisation & Rationalisation

#6: Centralisation & Rationalisation

by Andy Ponsford, Head of Cash Product Management, EMEA, J.P. MorganTreasury Services, and Seamus Desouza, Senior Product Manager for ForeignExchange, EMEA, J.P Morgan Treasury Services.

As we reach the end of J.P. Morgan’s series on the issues that matter most to treasurers today, we take a look at some of the principal objectives that have been common to virtually every treasury both during and subsequent to the crisis. Firstly, companies are seeking to centralise their treasury activities, either physically or virtually, to achieve visibility and control over the company’s cash, investment and borrowing activities. Secondly, they are rationalising bank relationships, accounts and systems, to realise greater efficiencies and leverage the advantages of centralisation more fully. This article looks at some of the current drivers and enablers of centralisation and rationalisation, and how these initiatives can benefit the company.

Treasurers are now recognising the implications and potential benefits of SEPA more clearly, particularly since the launch of SDD.

For many treasurers, centralisation and rationalisation have been long-standing objectives; however, the crisis has intensified the business case and reduced internal resistance to change. During the crisis, difficulties in securing access to finance and the need to optimise the use of cash meant that visibility and accessibility of cash was paramount. In addition, many optimisation projects had to be postponed or frozen while budgets were constrained, so initiatives such as SWIFT connectivity or Single Euro Payments Area (SEPA) migration were often held off. As we see a start to the recovery, and new industry opportunities such as SEPA Direct Debits (SDD) strengthen the business case for centralisation of collections and SEPA migration, we see greater momentum for treasury optimisation projects amongst our clients.

SEPA and centralisation

Treasurers are now recognising the implications and potential benefits of SEPA more clearly, particularly since the launch of SDD. Some issues still remain, particularly around reachability of SDD, and the use of existing direct debit mandates in countries such as Germany. However, these are nearing resolution as, for example, reachability will be mandatory from November 2010 across the Eurozone. This means that there is now an effective start date for SEPA, which is proving a catalyst for migration amongst large corporates. While many were waiting for a mandated end-date of existing domestic payment schemes on which to base their plans, treasurers recognise that with a meaningful start-date and a defined business case, there is now the incentive to migrate to SEPA. This is a catalyst for further centralisation of financial activities and rationalisation of both internal processes and external bank relationships.